21 February 1994 External T.I. 9331745 - TAXATION OF INDIAN EMPLOYMENT INCOME

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

		933174
XXXXXXXXXX	J. Humphrey

Attention: XXXXXXXXXX

February 21, 1994

This is in reply to your letter of October 29, 1993 requesting our views on the treatment for tax purposes of income earned by Indian employees of "native owned and controlled benevolent organizations."

You refer to a number of categories of such organizations including:

-regional tribal councils;
-social service and welfare organizations;
-child development organizations;
-economic development organizations;
-employment organizations;
-housing societies;
-language associations and
-substance abuse centres.

You state that these organizations are generally funded by either the Department of Indian and Northern Affairs and/or various Indian Bands and that the vast majority of their services are directed to Indians and Indian Bands on reserve. You indicate that generally the employees in question will live off-reserve. You are of the view that the income of these individuals should qualify for exemption under the principles laid down in the Williams case.

You also ask whether certain factors such as the location of the organization's bank accounts, the employee's bank accounts, directors' meetings and delivery of paycheques affect our opinion. Finally, you inquire whether there are other connecting factors we consider relevant.

Our Comments

As a result of the Williams decision, the Department reviewed its administration of the section 87 Indian Act exemption as it applies to employment income, culminating in the publication of detailed guidelines on the subject on December 15, 1993. We enclose a copy for your review.

Guideline 1 will apply to exempt the on-reserve portion of the income of employees whose duties on a reserve constitute 10% or more of their total work time.

Guideline 3 will apply to exempt the income of an employee where the duties are principally performed on a reserve (by that we mean greater than 50% of the time) and the employer is resident on a reserve. The Department's position regarding when the employer will be considered to be resident on a reserve is found at page 11 of the Guidelines - essentially a corporation is resident at the location where its central management and control is actually located. The central management and control of an organization will normally be at the place where the directors of the corporation meet and exercise control.

Guideline 4 will apply to exempt the income of an employee in circumstances where the employer is an Indian organization dedicated exclusively to the social, cultural or economic development of Indians, who for the most part live on reserves, the duties are part of the non-commercial activities of the organization and the organization is resident on a reserve.

While any particular employee's status is a question of fact to be determined looking at all relevant circumstances, it is possible that employees of many of the organizations which you have described may be exempt under the Guidelines discussed above.

We trust these comments will be of assistance.

Yours truly,

Roberta Albert
for Director
Business and General Division
Rulings and Intergovernmental
Affairs Branch